Riyadh right to rethink strategy

05 October 2010

Big players comfortable with risk and looking for larger profits will be put off by low-risk contracts

Tendering services contracts that are attractive to potential bidders is far from easy. While tendering management deals for Mecca and Taif, Saudi Arabia realised its contracts were attractive, but it was the smaller players that are most keen to compete.

The problem for the kingdom is that the large-scale projects would be managed handled by large international firms with a wealth of expertise to draw upon.

The kingdom’s first two contracts for Riyadh and Jeddah drew a healthy level of interest. French water companies Veolia and Suez Environnement won the deals beating competition from other big-names. In contrast, the third water management contract for Mecca and Taif, drew only two bids.

The fall in the number of bids may have been the result of several factors. Firstly, whereas Riyadh and Jeddah are metropolitan areas, Mecca and Taif are not. The complexity of dealing with a holy city may have deterred potential bidders.

The trend could also indicate a fundamental flaw with Saudi Arabia’s water management contracts. National Water Company (NWC) offered low-risk contracts with narrow profit margins. Such opportunities may appeal to smaller water companies, but are unlikely to entice multinationals with the ability to absorb risk.

However, this assessment fails to explain the high level of interest in the initial contracts for Riyadh and Jeddah. Some industry players have indicated that Veolia and Suez were keen to secure the contracts to ensure a strong presence in the country in anticipation of future work.

NWC is now re-assessing its plans to tender a fourth contract for Medina and a fifth to serve Damman, which suggest that there are some aspects of the process that are worth changing.

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